Question

Which of the following are mechanisms that have evolved to mitigate potential agency problems?

I) Using the firm's stock options for compensation
II) Hiring bickering family members as corporate spies
III) Boards of directors forcing out underperforming management
IV) Security analysts monitoring the firm closely
V) Takeover threats

Answer 1

I) Using the firm's stock options for compensation

III) Boards of directors forcing out underperforming management

IV) Security analysts monitoring the firm closely

V) Takeover threats

Step-by-step explanation:

Agency problem can be regarded as

conflict of interest which are inherent that can exist between management of a company and its stockholders. It exist when there is expectation that one party act in the best interest of other.

It should be noted that Mechanism that are used in mitigation of potential agency problems are;

I) Using the firm's stock options for compensation

III) Boards of directors forcing out underperforming management

IV) Security analysts monitoring the firm closely

V) Takeover threats